As 2020 approaches, much will be written about Total Rewards Strategies, and we will all be encouraged to think about:
- External forces and comparisons – what are competitors for talent paying and how do we wish to compare?
- Local legislation – what are our compliance issues related to e.g., gender, disability, working hours, seniority, etc?
- Global equity – if we are a multinational organization, how should our Total Rewards packages compare across national boundaries?
- What our organization should pay for e.g., what do we pay for in recurring reward (e.g., skills, experience, knowledge, job responsibilities, …) and what do we pay for episodically (e.g., results/output, exceptional input, ad hoc performance, …)?
- The structure of rewards – how do we structure total rewards e.g., pay grades (shallow or deep, wide job families or narrow job types) or spot salaries?
- What we include in Total Rewards e.g., base pay, variable pay, vacation allowance, maternity and parental leave, compassionate leave, various assurances and insurances, training and development, recognition and awards, scholarships, sabbatical and other forms of educational leave, travel, car allowances, working environment (including flexible hours and working location), opportunities for community service and charitable contributions, board and other representative positions, ….!
- How pay (and, indeed all benefits), are determined e.g., external standards, annual progression, union negotiated settlements, formulaic (e.g., based on assessments or performance data), manager discretion, executive decision for different groups, HR decision, employee driven (e.g., linked to demonstrated criteria such as certifications, achievements, …);
- When pay etc changes are made e.g., employment anniversary, annually for all, event driven, on demand, in response to results, …;
- Who makes individual reward decisions e.g., a system, manager, direct manager + indirect manager, manager + HR, HR alone, …;
- How, when and by whom decisions are communicated. More about this shortly!
All those are important. But three facts are often neglected in the face of all those detailed discussions. First, each organization must ensure that the cost of its workforce fits within an economically viable model for the business. Second, we must understand what Total Rewards can and cannot achieve. And, third, how each employee experiences Total Rewards is critically important.
Every element in our total rewards package will have a potentially different perceived value for each employee. And, herein lies the challenge
Economically viable business model
In a prior article, I referred to the 6531 HR philosophy, the “6” of which relates to the six critical contributions that HR must make to any organization. The first of those six is “Update the organization's strategy, not merely support it.”
We can choose to have a Total Rewards Strategy that merely responds to the organization’s overall strategy. Or, we can use it to inform other aspects of the organization’s strategy. For example, if the organization wishes to pay at Upper Quartile in order to attract and retain top talent in its sector, then it needs to ensure the funds to support that. This may have implications for R&D (to develop disruptive premium priced solutions); for Sales (to focus on premium client acquisition and retention to reduce % cost of sales); for Finance (to maximize incoming investment and cash flow, and minimize bad debt), for Operations (to achieve higher levels of productivity), etc.
As HR professionals, it is important to understand that we may need to persuade more than the CEO and the CFO to approve our recommended Total Rewards Strategy. It may be the Head of R&D, Head of Sales & Marketing or even the COO who needs to enable the strategy and we must ensure their commitment to actions, not merely their agreement.
What can a total reward strategy achieve?
Pay (the purely financial elements of the Total Rewards package) and other tangible benefits are key components of Talent Attraction but are rapidly superseded as motivators or retainers by each employee’s working experience once they have joined. Frederick Herzberg’s Two Factor theory of motivation, developed in 1959, still applies i.e., that there are satisfying factors, such as financial reward (which if not supplied sufficiently, lead to dissatisfaction and decreased productivity etc.) and motivating factors (typically non-financial) which, so long as the satisfying factors are present, motivate individuals.
Financial incentives, therefore, rarely have the motivational impact that is expected. In fact, they frequently have damaging effects. They are most effective with a very small percentage of individuals who genuinely are motivated by potential earnings and with those who are experiencing immediate financial difficulties. Both these groups pose significant people-management challenges. Non-financial rewards tend to have a longer-term positive impact on both development and performance for all.
We should seek to ensure that our Total Reward Strategy is:
- Sustainable given the likely vagaries of the organization’s foreseeable performance and funding;
- Sufficiently generous and comprehensive to attract the talent that we need at various levels;
- Demonstrably fair, so that employees feel they receive appropriate reward and recognition for their performance … and that others do not receive rewards that are substantially different for similar performance;
- Sufficiently transparent so that employees do not feel cheated or envious. Note, with the level of social media engagement, the concept of secrecy over individual pay is no longer sustainable.
Each employee's experience of Total Rewards is critically important
Each individual employee’s experience of the Total Rewards Strategy determines whether it works for us or not. And, we need to understand that HR’s views of this are often out of synch with those of the employees at large!
Every element in our Total Rewards package will have a potentially different perceived value for each employee. And, herein lies the challenge. All too often, we design our strategies for the average employee; we benchmark against the mean or median salaries; we match the average of our competitors’ profit share schemes; we provide insurances against the average of others in our sector; etc.
But, we probably do not have a single average employee in our workforce – they are all unique; and they all chose to work for us, not for our competitors. How they experience each and every single element in our Total Rewards Strategy impacts their perception of the organization and the contributions that they therefore make – the return they give us on our investment in them. And, what is the single largest factor in their experience? Their immediate manager! They are the ones who can identify and address those different needs and wants.
“The significant differentiator of sustainably successful organizations is the quality of their leadership and management.” Approximately 66 percent of those who leave organizations cite an interaction with their manager as a key trigger for them doing so, and that their manager failed to give them needed feedback or to hold others to account. Indeed, some 50 percent of current managers report having received insufficient training pre and post-appointment … and not even enjoying managing others.
Each organization must ensure that the cost of its workforce fits within an economically viable model for the business
So, our Total Rewards Strategy must include ensuring that we have quality people-management. Managers need to:
- Understand fully the Total Rewards strategy;
- Communicate the strategy regularly and frequently to their staff - so that the staff understand and appreciate the full range of benefits that they experience working in our organizations;
- Be empowered to make as many of the Total Reward decisions for their staff as possible;
- Apply the strategy transparently and fairly, and be charged to justify themselves each decision they make, not pass the buck to others.
Without the above, all our efforts will be thwarted. Let’s make sure that 2020 sees pragmatic Total Rewards Strategies implemented by high caliber managers, working to deliver sustainably successful organizations.